Published 7:00 pm, Thursday, February 27, 2003

The lawsuit seeks $5.4 million, the maximum allowed, for what it alleges was Smithfield's failure to file premerger federal notification documents with the Justice Department and Federal Trade Commission before it bought stock of competitor IBP Inc.

Smithfield released a statement Friday saying it believes it complied with notification retirements and that the suit has no merit. The company rejected the possibility of an out-of-court settlement.

Smithfield is the nation's largest hog producer and pork processor. IBP was the country's No. 2 pork packer and now is a subsidiary of Springdale, Ark.-based Tyson Foods Inc.

The Justice Department said Smithfield bought IBP stock as a step toward a merger, requiring it to file the acquisition documents under the Hart-Scott-Rodino Act. Smithfield lost the bidding war over IBP to Tyson.

The department said the Smithfield, Va.-based company violated the act over 97 days in 1997 and 401 days from 1999 to 2001.

"Companies cannot evade Hart-Scott-Rodino Act filing obligations by ignoring the plain language of the exemption," said Deborah P. Majoras, principal deputy assistant attorney general of the department's antitrust division. "Acquisition of a stock in a firm that is also a potential takeover target or merger candidate is not an acquisition that is 'solely' for investment."

The provision is intended to give federal agencies the opportunity to investigate proposed transactions to determine if they would violate antitrust laws.

Smithfield said it will "defend itself vigorously."

"The two parties have differing viewpoints on the interpretation of a provision of the Hart-Scott-Rodino Act and the matter should be decided in the courts," the company's statement said.

Earlier this week, Smithfield reported a sharp drop in third quarter earnings, to $5.3 million, or 5 cents a share, from $54.5 million, or 49 cents a share a year earlier. The company raises 12 million hogs a year, selling 3 million of them to other meat processors.

Smithfield blamed the decreased earnings on low prices for live hogs and on weak demand for fresh pork.

Shares in the company fell 18 cents, or 1 percent, to close at $18.53 each on the New York Stock Exchange.